Economy

The sole purpose of investment is profit. All other considerations are secondary

Published

11 years ago

March 14, 2014

Simon Leadbetter

In a recent debate at a team get-together, Blue & Green Tomorrow’s founder and publisher Simon Leadbetter was asked to adopt the role of a red-in-tooth-and-claw, unfettered investor. With 18 years’ experience in financial services, he has worked with people whose profit-at-any-cost mentality would make Gordon Gekko proud. This was the argument he made on their behalf.

Note: Before you read on, we would like to point out that this isn’t a true reflection of our publisher’s view, but he knows people who hold it in entirety, or even more extreme versions. That said, as a former amateur dramatist, he can speak the lines that others write and has heard all of the arguments here.

The maximisation of profit maximises tax revenue for governments, increases consumer choice through competition and creates greater employment opportunities for society. With this profit, our citizens, communities, companies and countries can invest and prosper.

The business of business is ‘business within the law’ – and not charity. In fact, if more charities acted like businesses, rather than wearing the hair shirts they do, they’d probably be able to do more good as they would be significantly more efficient and raise greater sums of money.

The business of investors is ‘legal profit’, not morality. Yes, external factors that threaten a business (commercially or reputationally) or reduce its profit (such as resource inefficiency) should be driven out by good strategic leadership, relentlessly pushed by highly active shareholders and investors.

But, indulging the pet projects of non-owner business leaders, whose tenure is often fleeting at best, is unwise.

One chief executive may have a great plan that then diverts internal time and money, and ultimately harms profits, leading to redundancies and bankruptcy. So many corporate social responsibility (CSR) programmes which are effectively greenwash expose the business to more risk from consumer vigilantes and diverts management from the task of maximising profit.

What is legal is investable

“But, but, but – what about ethics, responsibility and sustainability?” What of them? What is legal is investable. To think or behave otherwise probably means you’re a hypocrite or worse.

If society, through its elected representatives, has decided an activity is legal, then you should be able to invest in it. By all means, campaign to ban cigarettes, ban alcohol, ban gambling, ban pornography, ban cars, ban everything in fact – and then we won’t be able to invest in it.

Last time I looked, smoking, drinking, gambling, porn and driving are legal and to participate in those activities but refusing to invest in them renders you a hypocrite. Society, not investors, needs to decide what is legal and what isn’t.

Slavery wasn’t abolished because a few Quaker investors divested, but because slavery became unacceptable and then illegal, after decades of painstaking parliamentary debate. No one really cared about the Quakers’ divestment, as it just meant there was more opportunity for those that remained, and who then moved their investment once the trade was banned.

Blaming investors and investment bankers for the world’s ills is tremendous fun and a great diversionary tactic for not addressing failures and inconsistencies closer to home, our own lifestyles and the politicians we have voted for. We are focusing on the wrong things if we attack investors and investment.

In the developed world, we are more informed and powerful than we have ever been. Firstly, we have access to all of the world’s information online. Secondly, as consumers we vote in favour of a thing through the trillions of daily transactions and clicks. Thirdly, we vote as investors by what we invest in. Finally, as electors it matters how we actually vote in elections. If you choose to be uninformed or don’t ‘vote’ in any of the last three, you don’t count.

The myth of the impotent, down-trodden citizen is a convenient excuse for those who are incapable of getting an aspirational and positive message across for their own misguided cause.

It’s also quite insulting to those who really do live in oppressive regimes where you have no choice on what you read, buy, invest in or vote for. For them, the promise of inward investment from our supposedly ‘broken system’ and securing some of the freedoms we take for granted might actually be their only glimmer of hope.

Finger-pointing environmentalists often have fossil fuel guzzling cars, fly to their eco-retreats and voluntourism breaks, bank with the big five banks, use the big six energy firms and live otherwise unsustainable lives, while campaigning for a return to a non-existent idyllic past. How you hold so many inconsistent positions in your head is alien to me.

Without the wealth creation of capitalism, life really was nasty, brutish and short for everyone but the very, very rich.

Do we really want politicians to tell us what we can or can’t invest in?

The heavy hand of government is the worst picker of winning industries; investors are much better, because they sift and analyse countries, companies and funds every single day.

Some Whitehall bureaucrat or short-lived political pole climber is the wrong person to choose a winner. It is those down in the dirt, risking their own money and creating tomorrow’s companies and industries who pick the real winners and move society forward and upwards.

A significant number of politicians are demagogues, vain, amateur meddlers and for sale – or all of the above. They collude with vested interests and monopolies, appoint their mates, subsidise favourite groups and queer the competitive pitch.

It’s not the fault or role of investors to address that democratic deficit, but the role of electorates. As long as we are investing within the rules our democracy dictates.

Yes, governments need to create a level competitive playing field but then they need to let the unruly hordes of investors and consumers decide.

Trust the wisdom of the market and its boisterous crowds, and everyone in society gains

Property rights can protect the environment, carbon markets can drive down emissions, genuinely competitive markets and mobile workforces can create real consumer choice and model employers. Sustainable prosperity comes from the wealth creators, not wealth takers like governments.

If you want to do ‘good’, join a charity or party or vote for a party that promises the reform you want. Convince us to vote for a change in the law on what is legal and what is not. In the meantime, investment profit maximisation within the law is ‘good’.